Online radio stations, Webcasters, and record labels have reached a new agreement with royalty clearinghouse SoundExchange that resolves the long-festering dispute regarding royalties to be paid for streaming Internet radio. The agreement is based on an experimental formula that has “pureplay” Webcasters paying up to 25 percent of their revenues to artists and rights owners, depending on the size of their operations. To be eligible for discounted rates, Webcasters agree to comply with more stringent reporting requirements.

“More than two years in the making, this is an agreement we’re proud of because it shows that both sides can address the business concerns of the Webcasters while giving artists and copyright holders the potential to share in the revenue growth of Webcasters,” said SoundExchange executive director John Simson, in a statement.

The agreement breaks “pureplay” Webcasters—those who stream sound recordings under a government license—into three groups: those that earn over $1.25 million per year, those who earn $1.25 million per year or less, and those who provide bundled, syndicated, or subscription services. SoundExchange considers the alternative rate structure for these Webcasters experimental and not representative of “fair market rates,” but it hopes the revenue sharing arrangement will enable Webcasters to develop their businesses, rather than shut down entirely in the face of massive royalty rate hikes approved by the Copyright Royalty Board in 2007.

Webcasters including radioIO, Digitally Imported, and AccuRadio have agreed to the new terms. Online streaming service Pandora also welcomed the new royalty structure and will participate, but will also put a cap on free streaming from the service: listeners will be limited to 40 hours per month on the free version of Pandora; after that, listeners can get unlimited listening for the remainder of the month for $0.99. The per-month fee is a separate program from Pandora One premium service, which offers unlimited listening and other features. Pandora estimates the change will impact about 10 percent of its heaviest listeners.

Traditional AM and FM broadcasters do not have to pay copyright royalties for over-the-air broadcasts; however, they are subject to the new rates for material streamed over the Internet.